Do UAW workers make $73 an hour? Does it matter?

Posted Dec 10th 2008 4:47PM by Peter Cohan
Filed under: Industry, Competitive Strategy, Employees

There has been much made of how well United Auto Workers (UAW) members are paid. One figure often used is $73 an hour. And it's also claimed that this pay level puts the U.S. auto manufacturers at a big competitive disadvantage. But that number is inflated and labor costs are not even that important a reason for the loss of U.S. auto market share. The real problem is that U.S. automobiles sell for a lower price but their quality is relatively poor, so consumers prefer the more expensive Japanese models.

The auto industry has used the $73 an hour figure in discussions about its UAW negotiations. But the New York Times points out that this number includes three things that don't all belong together -- wages, overtime, and vacation pay ($40/hour), health care and pension benefits ($15/hour), and retiree pension benefits ($15). That last thing does not belong because it's a fixed cost. If you compare the salary and benefits of a UAW worker to those of a Japanese one who gets less generous benefits, the numbers are much closer -- UAW ($55) vs. Japanese workers ($45).

The more important numbers are the ones that help explain why the U.S. auto manufacturers have lost so much market share and are now at death's door. Labor costs account for 10% of the cost to produce a U.S. vehicle so cutting UAW pay to $45 an hour would not make much of a difference. That's because U.S. labor costs are a mere $800 per vehicle higher than Japanese ones -- yet the typical U.S. vehicle sells for $2,500 less than the comparable Japanese model.

So the loss of U.S. market share must be due to consumers' perception that U.S. vehicles have much lower quality than Japanese ones. Even the lower prices for U.S. vehicles are not enough to convince U.S. consumers to switch from Japanese to U.S. models.

If U.S. auto company executives could design and build cars that consumers perceived as better than Japanese ones, then perhaps the U.S. companies could reverse their market share decline. Until then, squeezing labor costs won't make much of a difference.

Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College. His eighth book, You Can't Order Change: Lessons from Jim McNerney's Turnaround at Boeing, will be published by Portfolio on December 26, 2008.

Tags: inthenews, labor costs, UAW, United Auto Workers, wages

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Reader Comments (Page 2 of 2)

12-15-2008 @ 1:48PM

JB said...

To the previous post:

Nice try! I'm sure that the unionized groups that you mentioned, although most never needed to be unionized in the first place,organized by secret ballot only as with the rest of the election process in this Country. Why now are the unions aginst this time honored process?

At the turn of the last Century I may have even been a union organizer but they (the unions) have long since exceeded their original purpose and have priced themselves out of the market. One need only to look at what WAS this Nation's Steel Industry or current ecnomic woes with domistic auto production to understand this. Of course, the union folks will say that they have/had nothing to do with such problems. I think most people know better.

12-16-2008 @ 11:30PM

JB said...

So, where is the Union A$$$hole's response?

1-01-2009 @ 3:56PM

Toni said...

Will someone please tell me what a unionized worker makes with wages and benefits combined. A NY Times Reporter in a 12/10/08 article reported that they make $40/hr + an additional $15/hr in benefits. That makes their wage per hour $55, $114,000 per year for 2080 hours. Any truth to this? Will someone that works on the line please reply. Where is the reporter getting his figures?

2-25-2009 @ 11:41PM

Let's Be Real said...

The $70.00 Plus/hour that the car companies pay is indeed the total cost per hour that costs them per worker to produce a car. No one says that the worker receives that - but that is the cost the car companies are saddled with based upon the UAW. That number is not competitive with foreign car companies that produce cars in the US without the UAW contract. The foreign car companies don’t seem to have problems finding workers that will work for them either.
Another great point that is largely ignored is that a large number of “foreign” cars have more American-produced parts in them then the Big Three car companies. The best thing that could happen is for the government to let them go bankrupt, then they could renegotate their contracts and bring their costs in line. Bankruptcy is NOT going out of business - it’s being able to renegotiate your debts and coming back with , hopefully, a successful business model. When you file bankruptcy, all contracts in place are declared null and void. Throwing more taxpayer money at these companies will not solve the problem of selling inferior cars that people don’t want to buy.

2-25-2009 @ 11:45PM

Let's Be Real said...

To Toni-
My understanding is that the compensation per worker, not including the legacy costs of having to pay for retired workers, is approx $55/hour. This includes take-home pay, benefits, and vacation time. This number is still approximately 25% higher then foreign car companies pay per hour for workers.
The $70 plus per hour number is based upon the additional costs of paying for retired workers as per their UAW contract

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